Media is a rather generic term, but it describes any images, video, or audio that might accompany an item like an article in a blog or a photo in a gallery. The Media Tab is similar to the Picture Tab in that you have a single primary asset for the item, and then a number of fields to describe the content.
Upload or Link to Media
Sitemason expects you to either upload your media or link to an existing asset. For example, if you had a movie.mp4 file on your desktop, you would want to upload the file. However, if you have a YouTube video already uploaded somewhere, you'd include the link "from the web" like http://www.youtube.com/watch?v=xyz123.
Like with Pictures, file settings are fields that describe the media asset, like a caption, title, or credit.